How Well Is Colombia's Ecopetrol Performing?

www.thedialogue.org March 3-7, 2014

FEATURED Q&A BOARD OF ADVISORS How Well Is Colombia's Ecopetrol Performing? Mary Rose Brusewitz Francesco Olivieri Partner, Washington Office A year ago, Colombia's percent) due to revisions and extensions, Strasburger & Price Head, Enel Green Ecopetrol overtook Brazil's not discoveries. To the outside investor, Power North America Jeffrey Davidow Petrobras as the largest listed Ecopetrol, often referred to as a 'law firm Senior Counselor, Larry Pascal energy company in Latin with oil rigs,' appears to be more interest- The Cohen Group Q Partner, America by market capitalization, but its ed in satisfying the agenda of its main Haynes and Boone market cap has fallen by around 40 per- Ramon Espinasa shareholder, the Colombian government Consultant, cent since then, and last month Ecopetrol (88.5 percent) than in maximizing share- R. Kirk Sherr reported that net profit in 2013 was down Inter-American President, holder value. While the government's Development Bank Clearview Strategy 10.8 percent year-on-year. Despite that, budget benefits from a high dividend, the Group CEO Javier Gutiérrez said 2013 was a company's payout ratio of 80 percent has Luis Giusti Senior Advisor, good year for the company, noting that it hampered its ability to adequately fund its Charles Shapiro "grew our reserves and production and capital expenditure budget, to the detri- Center for Strategic & President, International Studies Institute of the maintained strong financial results within ment of exploration success. Not only has Americas a challenging environment for our opera- Continued on page 3 Jonathan Hamilton tions." How did Ecopetrol fare in 2013? Partner, Garrett Soden White & Case What is the outlook for the company this Executive Director, year? What are its challenges, and what Etrion Corporation Raul Herrera is going well? Partner, Mark Thurber Arnold & Porter Partner, David Ross, managing director Andrews Kurth Paul Isbell of Chevy Chase Trust Investment Fellow, Advisors in Bethesda, Md.: Johns Hopkins Roger Tissot University-SAIS Independent Energy "Ecopetrol, as demonstrated by Economist A its falling market capitalization, has failed James R. Jones over the last 18 months to build on its past Co-chair, Alexandra Valderrama Manatt Jones International Gov't success. Production growth, the compa- Pemex To Invest Record Sum Global Strategies Affairs Manager, ny's hallmark by growing at a compound of $28 Billion This Year Chevron annual growth rate of 13.6 percent during Jorge Kamine 2007-2012, slowed to 4.5 percent in 2013 Mexican state oil company Pemex will Counsel, Andrew Vesey invest a record sum of nearly $28 billion Skadden Arps Executive VP and Chief and even fell in the last quarter from the Operating Officer, previous quarter. In addition to slowing this year, most of which will be ear- Craig A. Kelly The AES Corporation production, the company has failed to sig- marked for exploration and production, Director, Americas nificantly build reserves. While the com- CEO Emilio Lozoya said Monday. See Int'l Gov't Relations, Max Yzaguirre pany was able to boost reserves at the end story on page 2. Exxon Mobil Corp. Chief Executive Officer, The Yzaguirre Group of 2013 to maintain a Reserve Life Index of File Photo: Mexican Government. eight years, this was almost entirely (90 Inside This Issue

FEATURED Q&A: How Well Is Pemex Plans to Invest a Enel to Begin Studying Feasibility Colombia's Ecopetrol Performing?...... 1 Record $28 Billion This Year...... 2 of Geothermal Plant in Guatemala ...... 4 Pemex Contractor Oceanografía U.S. High Court Orders Argentina Announcement: Mary Rose Brusewitz Under Investigation for Fraud ...... 2 to Pay Britain's BG Group $185 Mn...... 3 Joins the Board of Advisors...... 4 U.S. Judge Rules That Judgement Petrobras to Explore for Political and Economic News: Costa Rica, Against Chevron Was Fraudulent...... 2 Hydrocarbons in Eastern Bolivia...... 4 Nicaragua, Chile, Mexico and More ...... 4-5

ENERGY SECTOR BRIEFS Oil & Gas News Officials in Mexico have previously raised questions about Oceanografía. The coun- Atacama Solar's 3 MW Los Puquios try's Federal Audit Office criticized Pemex Solar Plant Begins Operating in Chile Pemex Contractor Oceanografía in 2012 for what it said was a failure to Atacama Solar's 3-megawatt Los Under Investigation for Fraud investigate apparent contract irregularities Puquios solar plant in Chile's north- with the oil services provider. Pemex also ern Tarapacá region has begun oper- Bondholders of Oceanografía, a contrac- did not properly investigate overpayments ating, the company, which is com- tor for Mexican state-owned oil company for work that was not happening on time, prised of approximately 30 Spanish Pemex, on Wednesday took control of a the audit office said at the time. However, 180-meter construction ship as collateral Pemex did not sanction Oceanografía until investors, said in a statement, EFE after determining that the company was in Feb. 11, leading to Citigroup's investiga- reported Tuesday. The $3.9 million default on $160 million of notes due in tion of Banamex's loans to the company. plant is the largest fixed-solar power 2018 because of a missed payment, station in Chile, according to the Bloomberg News reported. On Feb. 28, the U.S. Judge Rules That Judgment company, which added that Chile Mexican government took over the oil- Against Chevron Was Fraudulent has among the world's highest services company after Citigroup reported potentials for photovoltaic stations. finding at least $400 million in bogus loans The legal team representing Ecuadorean from Oceanografía at its Mexican unit, villagers in a pollution case against Sowitec to Carry Out Feasibility Bloomberg News reported. Citigroup's Chevron used "corrupt means" to secure a Study for 40 MW Solar Plant in Peru chief executive officer, Michael Corbat, multi-billion dollar judgment through a Peru's Ministry of Energy and said Citi believes the incident was an iso- court in Ecuador in 2011, U.S. District Mines on Monday granted a tempo- lated one and called it a "despicable crime." Court Judge Lewis Kaplan in New York rary concession to Sowitec Oceanografía borrowed from Banamex ruled Tuesday, BBC News reported. The Operation Perú to carry out feasi- ruling means that the villagers cannot turn to U.S. courts to enforce the ruling, but the bility studies for a 40-megawatt The attorney general's office is Ecuadoreans' legal team said it will appeal. solar plant in the La Joya district of “ working ...to establish criminal An Ecuadorean judge in 2011 ruled that Arequipa province, state news Chevron should pay residents of the Lago agency Andina reported. The com- responsibility quickly. Agrio region $18.2 billion for "extensively pany presented an application for ” polluting" the region. Last year, the — Jesús Murillo Karam the concession on Dec. 5 and will nation's supreme court upheld the ruling, have 24 months beginning Tuesday but reduced the compensation awarded to to complete the studies. listing anticipated payments from Pemex $9.5 billion. The legal battle is over con- as collateral. However, Banamex recently tamination that occurred at a Texaco- Bolivia Natural Gas Sales Increased learned that Oceanografía seemed to have operated oil field in Ecuador between 1964 11.9 Percent Year-on-Year in 2013 falsified invoices to the state oil company, and 1992. Chevron purchased Texaco in Bolivia received $6.06 billion of rev- Corbat told employees in a separate 2001 and says that it cleaned up its share of enue last year from the sale of natu- memo. Pemex on Feb. 11 took action to the pollution before turning the field over ral gas to Argentina and Brazil, an suspend Oceanografía from receiving gov- to Ecuador's state-oil company ernment contracts for 21 months and 12 Petroecuador. Kaplan said there was "clear 11.9 percent increase from the $5.4 days. The suspension is a major blow to and convincing evidence" that lawyer billion revenue earned in 2012, Oceanografía, which derives some 97 per- Steven Donziger had used bribes and coer- state-owned YPFB said in a state- cent of its revenue from Pemex. Between cion to secure a ruling in favor of the vil- ment Feb. 27. YPFB's director of 2003 and 2013, Oceanografía received lagers, according to Reuters. Donziger natural gas, Juan Sosa, said prepara- nearly $3 billion through more than 100 called Tuesday's decision "appalling." tions for the World Cup and low contracts with the state oil company. On Chevron is expected to use Kaplan's deci- levels of water at the country's Feb. 28, Mexico's attorney general's office sions to challenge other claims against it hydroelectric plants increased said it was investigating the oil services abroad. demand in Brazil. In December, provider and announced that it had seized Bolivia consumed 9.69 million cubic its assets. Mexico's government also named Pemex Plans to Invest a meters of natural gas per day (cmd) an administrator to salvage whatever busi- Record $28 Billion This Year domestically and exported an aver- ness remains. "The attorney general's office is working along with financial authorities Mexican state oil company Pemex will age of 32.16 cmd to Brazil and 14.55 and the bank in order to establish criminal invest a record sum of nearly $28 billion cmd to Argentina. responsibility quickly," Attorney General this year, most of which will be earmarked Jesús Murillo Karam said last week. for exploration and production, EFE

Copyright © 2014, Inter-American Dialogue Page 2 of 6 Inter-American Dialogue’s Latin America Energy Advisor March 3-7, 2014 reported. Speaking at an energy confer- Featured Q&A ence in Los Cabos on Monday, Pemex Continued from page 1 CEO Emilio Lozoya said, "This year, the company been stingy in its capital the Colombian oil industry was afflicted Pemex will invest the historic figure of expenditures, but a large amount has by delays in approval of environmental almost $28 billion, 85 percent in explo- been directed toward downstream assets licenses for oilfield operations, and ration and production of crude oil and like refining. For Ecopetrol, the down- although not severe, a resurgence of vio- gas." Of the overall figure, $3.2 billion will stream division is not profitable and yet lence, which have affected in some degree go to refining activities. The $27.7 billion they have allocated billions of dollars to the market cap of almost every oil com- that Pemex plans to invest during 2014 upgrading their refineries, even as U.S. pany operating in Colombia with an represents a 6.5 refineries, with their cost advantage, are equity position in public markets." increase over invest- squeezing margins globally. In a world ment last year and a short of heavy oil due to Venezuela's pro- Rodrigo Villamizar, former 154.1 percent duction declines, investors would prefer Colombian minister of mines increase from a seeing capex aggressively allocated toward and energy and professor at the decade ago, the com- a successful exploration program to A Instituto de Estudios Bursátiles pany said on its Web ensure the company's future." at the Universidad Complutense in site, according to Madrid and the University of San Diego: EFE, and Pemex Luis E. Giusti L., member of the "Ecopetrol's greatest problem is declining Lozoya foresees increasing Energy Advisor board, senior reserves. The official goal of growth in File Photo: Pemex. investment to $31.8 advisor at the Center for production of 1 million barrels per day by billion in 2018, the A Strategic and International 2015 requires an addition to reserves Financial Times reported. However, "to Studies and former chairman and CEO of higher than what the company has develop the full potential of resources in PDVSA: "By just looking at the numbers it achieved so far. Today, Ecopetrol has only the country will require investment of becomes clear that Ecopetrol had good 8.1 years worth of reserves. A 40 percent more than $60 billion a year," Lozoya results in 2013. Through a total invest- decrease in the stock price in an election added, according to the company's ment of $3.73 billion in exploration and year doesn't look like a promising run for Twitter. Pemex is the fifth-largest producer production, the company increased its Ecopetrol. Perhaps the peso's slump of oil in the world, but output has stagnat- production to a historic record of 788,200 could prove to be a blessing since ed over the last five years, the Financial barrels per day of oil equivalent and Ecopetrol generates more than two-thirds Times reported. Pemex's output last year increased P1 reserves by 5.1 percent to a of its revenues from oil exports. This, of averaged 2.52 million barrels of crude per new total of 1.972 billion barrels of oil course, requires that prices don't fall due day, a figure that is expected to remain the equivalent. This translated into a healthy to pressure from increased production in same this year and which represents a 139 percent reserves replacement factor. the United States and the new Iranian oil nearly 1 million barrel decrease from peak In addition, it invested $350 million in coming on stream. Colombia's strong output a decade ago. On Monday, Lozoya upgrading its Cartagena Refinery, prepar- resource base and business-friendly poli- also touted opportunities for foreign ing it for an efficient supply of products cies could offset some of the headwinds investors in the sector, noting that after the to the domestic market and leaving against the company but not its funda- country's energy reforms "There will be capacity for a volume of exports. Add mentals. And those are more closely relat- important opportunities both for Pemex new alliances nationally and internation- ed to geology than to geopolitics. and for other participants in an open mar- ally, a strong cash position and a reason- Financial metrics like net debt/EBITDA, ket," EFE reported. By March 21, Pemex able debt-to-equity ratio, and 2013 was EBITDA margin and ROA present a has to file to regulators a list of priority indeed a good year. In 2012, Ecopetrol bright side of Ecopetrol when compared blocks and regions for exploration and overtook Petrobras in terms of market with some of the majors, such as production based on "financial ability," value, partly because the latter had two Petrobras, BP and Exxon. It has increased "competitive advantages" and other fac- years of $50 billion to $60 billion budgets production consistently (meaning higher tors, said CFO Mario Alberto Beauregard. without significant production growth, efficiency and investment in mid- while the OGX fall from grace was not stream). It's clearly one of the best-per- U.S. High Court Orders Argentina helping the Brazilian oil investment cli- forming energy groups until you check its to Pay Britain's BG Group $185 Mn mate. In the meantime, Colombia was the fuel tank. Its market capitalization has Latin American vedette, and its national risen impressively, even briefly surpassing The U.S. Supreme Court ruled Wednesday oil company was still enjoying the bene- that of Petrobras, the Brazilian major that Argentina must pay British oil and gas fits of growth and recent partial privatiza- which produces about three times as company BG Group $185.3 million for tion and internationalization. It is widely much oil. In the oil world nothing scares losses the company incurred due to a 2002 understood that capital can move fast to more than when the variation in output gas-price freeze that occurred soon after find security and good returns. In 2013, growth is higher than the variation in the the South American country defaulted on Continued on page 6

Copyright © 2014, Inter-American Dialogue Page 3 of 6 Inter-American Dialogue’s Latin America Energy Advisor March 3-7, 2014 its international debt at the end of 2001, The Telegraph reported. BG Group, which Announcement held the largest stake in gas distributor Metrogas at the time, initially sought arbi- Mary Rose Brusewitz Joins the Board of Advisors tration in 2003 after the government uni- laterally changed the basis of prices from We are pleased to announce that Mary Rose Brusewitz, part- U.S. dollars to pesos and froze prices, con- ner in charge of the New York office of Strasburger & Price tending that the move had reduced the and chair of the firm's international practice, has joined the value of its stake in the distributor. The Energy Advisor's board. dispute centers on the interpretation of a British-Argentine investment treaty. A Brusewitz has more than 30 years of experience as a trans- U.S.-based tribunal and federal district actional attorney, with a focus on working with Latin court had previously ruled in BG Group's American, as well as U.S, European and Asian companies favor, but in 2012, an appeals court in doing business in Latin America. Her areas of expertise Washington threw out the $185 million include evaluating legal and regulatory systems, cross-bor- arbitration award, ruling that per the der investments and joint ventures and emerging markets terms of the treaty, the dispute should have development finance, including in the infrastructure, water, power, oil and gas, renew- been handled in an Argentine court first. able energy, mining and roads sectors. Brusewitz also works in areas of impact invest- However, the Supreme Court found that ing and sustainability accountability and works with the microfinance industry on circumstances had rendered the local liti- carbon trading and climate change-related issues. gation requirement inapplicable because Argentina had enacted "new laws that hin- Her past experience includes working on project financing, acquisition and disposi- dered recourse to its judiciary by firms in tion, and restructuring transactions for offshore oil field development, gas and oil BG Group's situation," according to EFE. pipeline deals, and thermal, hydro and wind projects. She has also advised on proposed energy policy legislation and has experience in the cross-border lease financing Petrobras to Explore for of large assets, such as offshore oil rigs and platforms. Hydrocarbons in Eastern Bolivia Brusewitz speaks Spanish and Portuguese and is a panel member of the Independent Brazilian state oil company Petrobras will Consultation and Investigation Mechanism of the Inter-American Development explore for hydrocarbons in eastern Bank, a transparency forum. She also serves on the board of the Microfinance Club of Bolivia, national oil company Yacimientos New York and was named to the 2009, 2010 and 2013 editions of The International Petrolíferos Fiscales Bolivianos Who's Who of Oil & Gas Lawyers. Brusewitz holds a B.A. from the University of announced, the Associated Press reported California, Los Angeles and a J.D. from the UCLA School of Law. Monday. YPFB president Carlos Villegas and Petrobras Bolivia head Erick Portela able energy company Enel Guatemala to state utility Instituto Nacional de signed a contract on Sunday, paving the begin feasibility studies and surveys with Electrificación (INDE) to extend its way for exploration in the 99,775-hectare the goal of installing a geothermal plant in power-purchase agreement from the Zunil (246,358-acre) Cedro area in the gas-rich the department of Totonicapán, Prensa geothermal plant for 15 years, from 2019 southeastern province of Santa Cruz. "In Libre reported. The company has one year to 2034. The contract amendment also the next few days, the Brazilian oil compa- to explore and carry out studies on the fea- transferred operation and management of ny will present its work plan and budget to sibility of generation, transportation and the geothermal field to Ormat in exchange YPFB," YPFB said, according to EFE. distribution from an eventual Central for an increased energy tariff, and INDE Petrobras already has exploration and pro- Generadora Palá plant. Enel is authorized took a three percent stake in the project, duction contracts for seven areas in to carry out studies in the municipalities Ormat said in a statement. Ormat added Bolivia. Petrobras produces gas for export of Momostenango, Santa María that it will work to improve the heat sup- to Brazil, where demand averages 31 mil- Chiquimula, San Bartolo Aguas Calientes, ply to increase the plant's generation, lion metric tons per day. San Francisco el Alto and the department's which is currently working at about 50 capital, Totonicapán. The energy ministry percent of installed capacity. Power Sector News foresees holding a tender for a geothermal plant to generate 150 megawatts of energy Political News and begin operation in 2016. The Central Enel to Begin Studying Feasibility of American nation currently has two Geothermal Plant in Guatemala installed geothermal plants with a total Araya Drops Out of Costa capacity of approximately 50 megawatts. Rica Presidential Race Guatemala's Ministry of Energy and In late January, Nevada-based Ormat Mines on Wednesday authorized renew- Technologies signed an agreement with Ruling party candidate Johnny Araya on

Wednesday withdrew from Costa Rica's Ortega's absence had led to rumors about presidential race, virtually guaranteeing his health. Ortega was seen Monday greet- POLITICAL & ECONOMIC BRIEFS that opposition candidate Luis Guillermo ing new Nicaraguan Cardinal Leopoldo Solís will be elected in the country's April 6 Brenes at Managua's airport. The president Venezuela's Maduro Breaks Off runoff. Araya, of the National Liberation told Brenes that he had "carried out the Diplomatic Ties With Panama Party, made the miracle of resurrecting me because a lot of Venezuelan President Nicolás announcement after people thought I was dead." Ortega disap- Maduro announced Wednesday that the University of peared from official ceremonies after Feb. the country was breaking diplomat- Costa Rica published 21, leading to concerns about his health. ic ties with Panama after it request- a poll showing Solís He failed to show up for a Feb. 26 ceremo- ed an urgent meeting of the with an overwhelm- ny to commemorate a 1978 uprising in ing lead, the which his brother was killed. The next day, Organization of American States to Associated Press Ecuador's president canceled a planned discuss the violent anti-government reported. The poll visit to Nicaragua, citing scheduling con- protests in Venezuela, the Associated Solís had Solís leading flicts on the part of Nicaragua's govern- Press reported. Maduro made the announcement at an event to mark File Photo: Solís cam- with 64 percent sup- ment. Some rumors circulated that Ortega paign. port as compared to the one-year anniversary of the Araya's 21 percent. death of his predecessor, Hugo The telephone survey of 1,200 likely voters Before Monday, Ortega had not Chávez. Maduro also said he was was conducted from Feb. 3-13 and has a been seen in public since Feb. 21. freezing trade and economic rela- margin of error of three percentage points. tions with Panama. In an official Araya, who served 22 years as mayor of San statement, Panama's government José before stepping down last year, decid- had been receiving medical treatment in said it was "astonished." ed to drop out because he did not want to Cuba and some even speculated that he spend any more money campaigning. "The had died. Ortega, 68, is currently serving Mexican Authorities Raid 11 Iron runoff election is looking very difficult and his third term as president. He was presi- Ore Yards in Pacific Seaport filled with obstacles and our time and dent from 1985 to 1990 after leading the resources are limited," said Araya. Though revolution that overthrew the Somoza Mexican police, soldiers and inspec- he is ending his campaign, Araya's name family's dictatorship. He returned to the tors on Monday raided 11 iron ore will remain on the ballot, and the runoff presidency in 2007 and was re-elected in yards at the Lázaro Cárdenas port in will still be held because Costa Rica's con- 2011. He is expected to seek re-election in Michoacán state and seized 120,000 stitution does not allow candidates to drop 2016 after lawmakers approved a measure tons of ore and 124 pieces of heavy out at this stage. Solís, of the leftist to do away with presidential term limits. machinery, the Associated Press Citizens' Action Party, urged Costa Ricans reported. The state's federal security to vote and not assume that he has already Economic News commissioner said the ore is being won. "Without that vote put in the ballot tested to see where it came from and boxes, without that vote counted … I if it is legal. Authorities have said won't be the president-elect," said Solís, a Bachelet's Tax Plan Could Affect that the Knights Templar drug cartel social science professor and historian. Investment: Finance Minister After Araya's announcement, Solís can- has mined and stolen ore for years. celed a planned trip to Washington where Chilean President-elect Michelle Growth of Chile's Economic he had been scheduled to speak at the Bachelet's tax reform plan could affect Activity Slows to Four-Year Low Inter-American Dialogue. Solís said he will investment and may need to be watered continue campaigning in Costa Rica ahead down, the country's outgoing finance min- Economic activity in Chile grew at of the vote, but will try to do so without ister said Tuesday, Reuters reported. "The its slowest pace in almost four years spending a large amount of money. "We economy is decelerating, and I imagine the in January, Reuters reported have the confidence and ability to lead the incoming government will take into Wednesday. The Imacec economic country down the path of progress," he account the economic situation and will activity index rose 1.4 percent from said. try, I hope, to achieve a pretty wide con- December, its lowest rate since sensus on tax reform," said Felipe Larraín. March 2010, according to the cen- Nicaraguan President Emerges "If you put forward that kind of plan and tral bank. The weaker-than-expect- After 10-Day Absence tell me that won't affect investment, I don't ed figure comes after other reports know where that would be true." Bachelet of slower retail sales growth and Nicaraguan President Daniel Ortega reap- takes office March 11 and has proposed peared Monday after not being seen in reforms such as an increase of the corpo- higher unemployment, suggesting public for 10 days, BBC News reported. rate tax rate to 25 percent from 20 percent. that the country's economy has slowed down more than expected.

Featured Q&A Continued from page 3 Latin America Energy Advisor is published weekly by the Inter-American Dialogue addition of reserves. Since 2000, tent with its fundamentals, and there is Copyright © 2014 Ecopetrol, with the only exception being room for upside. Going forward, we will 2009, has shown a decline of 5.9 percent be focusing on the company's explorato- Erik Brand in the useful life of its oil reserves. No ry success and its ability to reach the Publisher wonder Ecopetrol's shares have fallen by ambitious production targets for 2015 (1 [email protected] 42 percent in New York over the past year millions barrels of oil equivalent) and Gene Kuleta and have come under renewed pressure. 2020 (1.3 Mboe). The management Editor [email protected] Bancolombia has said that,"Since 2012, seems confident the company will meet the market has begun to question the the 2015 goal from four fields: Castilla, Megan Cook Reporter, Assistant Editor sustainability of Ecopetrol due to the Chichimene, Akacías and Caño Sur." [email protected] poor growth in its reserves." Enrique Gómez-Pinzón, execu- Daniel E. Velandia O., head of tive partner at Holland & Inter-American Dialogue research and chief economist Knight Colombia: "It is certain- Michael Shifter, President for Colombia at Credicorp ly true that Ecopetrol's market A Peter Hakim, President Emeritus Capital: "The reduction of capitalization fell significantly during A Genaro Arriagada, Nonresident Senior Fellow Ecopetrol's market capitalization since calendar year 2013. Petrobras' market the first half of last year has been capitalization fell significantly during Sergio Bitar, Nonresident Senior Fellow explained by both market factors and 2013 as well. In both circumstances, the Joan Caivano, Director, Special Projects company-related issues. In general, stock value fell at the same time that Maria Darie, Director, Finance & Administration Ecopetrol represents 20 percent of the Brazil's and Colombia's currency lost main local stock index, being the natural ground against the U.S. dollar. Ariel Fiszbein, Director, Education Program vehicle for foreign investors to have According to data from Feb. 6, Claudio Loser, Senior Fellow exposure to the Colombian market. Ecopetrol's market capitalization was Nora Lustig, Nonresident Senior Fellow Hence, it is 'normal' to observe outflows $72 billion, while Petrobras' market cap- Margaret Myers, Director, from Ecopetrol's stock amid scenarios of italization was $74 billion. In 2013, three China and Latin America Program higher risk aversion to emerging markets main events took place that strongly hit Manuel Orozco, Senior Fellow as has been the case since May 2013. On Ecopetrol's profit-and-loss statement: (i) Tamara Ortega Goodspeed, Senior the other hand, financial results came in Colombian tax reform. The new tax Associate, Education below expectations as net income fell (CREE) hit Ecopetrol hard, (ii) the loss Jeffrey Puryear, Senior Fellow 11.3 percent in 2013. Throughout last in value of Ecopetrol's public securities Lisa Viscidi, Director, Energy Program year, the financials were affected mainly portfolio (TES), which in turn triggered by the increase of effective taxes after the need to set up large reserves to fund 2012's tax reform, a pension provision the pension liabilities, and (iii) the cre- Subscription Inquiries are welcomed at [email protected] and goodwill impairments in the down- ation of Cenit, a subsidiary owned 100 stream subsidiaries. We consider these percent by Ecopetrol, which is paid mar- Latin America Energy Advisor is published factors to be non-recurring events so ket rates for crude transportation. In weekly, with the exception of some major US that we would expect margins to stabilize 2013, there was a significant increase in holidays, by the Inter-American Dialogue in the upcoming quarters. At the same the transport expense line in Ecopetrol's 1211 Connecticut Avenue NW, Suite 510 time, reserves addition, which continues profit-and -loss statement which will be Washington, DC 20036 to be the main concern for the long term, compensated in 2014 by profits from Phone: 202-822-9002 Fax: 202-822-9553 www.thedialogue.org ISSN 2163-7962 surprised the market on the positive side Cenit. On the positive side, during 2013 as reserves (1P) increased 5.1 percent Ecopetrol's proven (1P) reserves grew The opinions expressed by the members of the Board year-on-year, while the replacement more than 5 percent and the replace- of Advisors and by guest commentators do not neces- ratio was 139 percent, maintaining the ment index for reserves grew more than sarily represent those of the publisher. The analysis is the sole view of each commentator and does not nec- reserves/production ratio unchanged at 130 percent." essarily represent the views of their respective employ- 8.1 years. Accordingly, we expect 2014 to ers or firms. The information in this report has been be a better year for Ecopetrol in terms of obtained from reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are both financial and stock performance. In The Energy Advisor welcomes responses guaranteed. If you have any questions relating to the fact, we believe the steep stock price to this Q&A. Readers can write editor contents of this publication, contact the editorial decline over the last 12 months has taken Gene Kuleta at [email protected] offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval the share to trade at levels more consis- with comments. system, or transmitted without prior written permis- sion from the publisher.